chapter-5 analysis and evaluation of working...

Analysis and Evaluation of Working Capital

Chapter-5 [184]

5.1 INTRODUCTION

5.2 CONCEPT OF WORKING CAPITAL MANAGEMENT

5.3 SIGNIFICANCE OF WORKING CAPITAL

5.4 OBJECTIVES OF WORKING CAPITAL

5.5 STRUCTURE OF WORKING CAPITAL

5.6 IMPORTANCE OF WORKING CAPITAL MANAGEMENT

5.7 ANALYSIS OF WORKING CAPITAL POSITION THROUGH RATIOS

5.7.1 CURRENT RATIO

5.7.2 QUICK RATIO

5.7.3 INVENTORY TO WORKING CAPITAL RATIO

5.7.4 STOCK TURNOVER RATIO

5.7.5 DEBTORS TURNOVER RATIO

5.7.6 AVERAGE COLLECTION PERIOD

5.7.7 WORKING CAPITAL TURNOVER RATIO

5.8 CONCLUSION

5.9 REFERENCES

CHAPTER-5

ANALYSIS AND EVALUATION OF

WORKING CAPITAL


Chapter-5 [185]

CHAPTER-5

ANALYSIS AND EVALUATION OF

WORKING CAPITAL

5.1 INTRODUCTION :

Any person cannot ignore the necessity of funds in a business unit either a retail

shop or a large manufacturing unit. Money is the only common factor in all units. Thus

money management is must that is commonly known as financial management. Proper

management of invested funds in a business results in effective financial management.

Each and every business unit needs funds.

The uses of funds of a concern can be divided into two parts namely long-term

funds and short-term funds. The long–term investment may be termed as „fixed

investment.‟ A major part of the long-term funds is invested in the fixed assets. These

fixed assets are retained in the business to earn profits during the life of the fixed assets.

To run the business operations short–term assets are also required.

The concept of liquidity within a business is important to understand the financial

management, as it is the basic criteria to test the short-term liquidity position of the

enterprise. Liquidity may be defined as the ability to realize value in money the real

liquid asset. It has two dimensions (a) The time required to convert the assets money and

(b) The certainty of the realizable price. Generally, liquidity means conversion of assets

in to cash during normal courses of business and to have regular uninterrupted flow of

cash to meet outside current liability as and when due and payable and also the ensure

money for day to day business operations.

Hence the flow of current should circulate with such a rapid speed that they are

converted in to cash within a year so that timely payment may be made to outsiders for

interest dividend etc. if a major part of current assets are blocked in inventories and credit

sales, not only ready cash will be available to pay current dept but there is a risk

shrinkage in the total current assets available because of possible fall in the value of

inventories or possible losses an account of bad depts.


Chapter-5 [186]

The quality of current assets is therefore very important for analyzing liquidity.

To know the liquidity position working capital analysis must be done.

5.2 CONCEPT OF WORKING CAPITAL MANAGEMENT :

There are two concepts of working capital quantitative and qualitative. Some

people also define the two concepts as gross concept and net concept. According to

quantitative concept, the amount of working capital refers to „Total of current

assets‟. Current assets are considered to be gross working capital in this concept.

The qualitative concept gives an idea regarding source of financing capital.

According to qualitative concept the amount of working capital refers to “Excess of

current assets over current liabilities.”

The excess of current assets over current liabilities is termed as „Net working

capital‟. In this concept “Net working capital” represents the amount of current assets

which would remain if all current liabilities were paid. Both the concepts of working

capital have their own points of importance. “If the objectives is to measure the size and

extent to which current assets are being used, „Gross concept‟ is useful; whereas in

evaluating the liquidity position of an undertaking „Net concept‟ becomes pertinent and

preferable.

It is necessary to understand the meaning of current assets and current liabilities

for learning the meaning of working capital, which is explained below.

CURRENT ASSETS :-

It is rightly observed that “Current assets have a short life span. These types of

assets are engaged in current operation of a business and normally used for short term

operations of the firm during an accounting period.

CURRENT LIABILITIES :-

The firm creates a Current Liability towards Creditors‟ (sellers) from whom it

has purchased raw materials on credit. This liability is also known as accounts payable

and shown in the balance sheet till the payment has been made to the Creditors‟. The

claims or obligations which are normally expected to mature for payment within an

accounting cycle are known as current liabilities.


Chapter-5 [187]

CIRCULATING CAPITAL :-

Working capital is also known as „circulating capital or current capital.‟ “The

use of the term circulating capital instead of working capital indicates that its flow is

circular in nature.”

WORKING CAPITAL MEANING :-

Working capital, like many other financial and accounting terms have been used

by different people in different senses. One school of thought believes as all capital

resources available to a business organization from shareholders, bondholders and

Creditors‟‟ “Works” up in the business activities to generate revenues and facilitate future

expansion and growth, they are to be considered as „Working capital‟. According to

them, the excess of current assets over current liabilities is to be rightly considered as

the „working capital‟ of a business organization.

Working Capital consists of that portion of the assets of a business, which are

used, in current operations. It includes receivables, inventories or raw materials, stores,

work-in-progress and finished goods, merchandise, bill receivable and cash.

These types of assets are normally temporary in nature. In accounting concept of

working capital it is the difference between inflow and outflow of funds. In other words,

working capital is the excess of current assets over current liabilities.

Working capital is defined as the excess of current assets over current liabilities;

Current assets are those assets which will be converted in to cash within the current

accounting period or within the next year as a result of the ordinary operations of the

business. They are cash or near cash resources. These include.

Cash and Bank balances

Receivables

Inventory

Raw materials, Stores and spares

Work in progress

Finish Goods

prepaid expenses

Short-term advances

Temporary investments


Chapter-5 [188]

The value represent by these assets circulates among several items. Cash is used

to buy raw-materials, to pay wages and to meet other manufacturing expenses. Finished

goods are produced. These are held as inventories. When these are sold, accounts

receivables are created. The collections of accounts receivable brings cash into the firm.

This is show in.

Current liabilities are the debt of the firms that have to be paid during the current

accounting period or within a year. These include:

Creditors‟‟ for goods purchased.

Outstanding expense i.e. expenses due but not paid.

Short-term borrowing.

Advances received against sales.

Taxes and dividends payable.

Other liabilities maturing within a year.

Working capital is also known as circulating capital, fluctuating capital and

resolving capital. The magnitude and composition keep on changing continuously in the

course of business.

5.3 SIGNIFICANCE OF WORKING CAPITAL:

Analysis of working capital performance has importance, both of way internal and

external because it has close relationship with the current or day-to-day operation of

business organization “Management to pay particular attention to the planning & control

of working capital.” R.D.Kennedy and S.Y.Mcmuller stated, “In –adequacy as

mismanagement of working capital is the leading cause of business failures.” Working

capital is the alternative measure of the changes in the financial position. Which is

concerned with “the safeguarding and controlling of the firms current assets and the

planning for sufficient funds to current bills?”

According to Guthaman, “Blood is very necessary in the human body to maintain

life, working capital is very necessary to maintain the business. Therefore, working

capital is the life blood and controlling nerve center of the business.” An enterprise

cannot be run without appropriate working capital. Not only working capital is enough,


Chapter-5 [189]

but also there should be a proper management of working capital because it is very

important for the success of an enterprise and for maximizing the value. Working capital

is essential element for business organization but the quantum of its requirement is

different from enterprise to enterprise.

“The goal of working capital is to manage each of the firm‟s current assets and

current liabilities in such a way that an acceptable level of net working capital is

maintained.” It is concerned with the choice of the financing mix for raising the current

resources In the business there is operating cycle, which converts cash into raw materials,

raw material in to goods in process, further goods. Finished goods, debtors, credit sales

and debtors in to cash the cycle of above operations shown in Chart No.-5.1.

CHART NO. - 5.1. CONVERSION OF OPERATING CYCLE


Chapter-5 [190]

Above diagram shows a business organization requires working capital due to its

production, sales, cash payments, according Walker and Banghan “The smoother and

more rapid the flow of funds, the more efficient is each dollar of working capital. In other

words when the flow of working capital is smooth and rapid the amount of working

capital required to produce a given output is less than when interruptions occur which

cause the flow to slow down” In a dynamic economy the perfect synchronization with

zero working capital is impossible and there for management should attempts to maintain

an adequate level of working capital at all times.

Brown and Howard described that “Though the current liabilities are paid from

cash generated by the current assets as a whole the working capital should be sufficient in

relation to the current Assets provide against danger from shrinkage in the value of

current assets particularly inventories.” proper management of working capital must

ensure the adequate amount of working capital as per needs of business organization. It

should be in good health and circulated efficiency.

Thus, policies regarding working capital have a great influence on an enterprise‟s

profitability, liquidity and structural construction because of management of working

capital is to ensure its optimum utilization for overall profitability of an enterprise.

According to Professor N.M Knandewal “working capital has also a technical role to play

in the maximization of the rate of return.

The units must keep pace with the scientific and technological taking place in the

field to which it pertains.” Therefore a financial manager should aware about appropriate

management of working capital policies by the each of the components of working

capital so as to ensure about adequate profitability and proper liquidity structure.

5.4 OBJECTIVES OF WORKING CAPITAL :

Working capital is the heart of business. If it becomes week the business is

unlikely to proper and survive later it will topple down. It is an index of the solvency of a

concern. Its proper calculation provides to the business. The right amount at cash to

maintained, the business can avail of the cash discount facilities offered to it by supplies,


Chapter-5 [191]

moreover. It also enhances so that the business can see itself go through periods of crisis,

the morale of the business is high and efficiency is also at its highest pitch.

The need of working capital cannot be ignored as well as over emphasized.

Working capital is a need of every business unit. The need of working capital comes into

existence due to the time gap between production and realization of cash from sales and

it is known as operating cycle. There are time gap between purchase of inventory items

and production, production and sales and sales it‟s conversion into cash. Thus, working

capital is needed to fulfill the following objects:

For the purchase of inventories, components and spares.

To overcome day-to-day expenses and overheads cost such as fuel, power or

electricity, office expenses.

To pay wages and salaries to the employees.

To provide the credit facilities to the customers.

To meet the selling expenses i.e. packing, advertising, etc.

For maintaining sufficient stock of raw material, work-in-process, stores and

spares and finished goods.

By optimizing the investment in current assets and by reducing the level of

current liabilities, the company can reduce the looking up of funds in working

capital thereby.

It can improve the return on capital employed in the business.

The second important objective of working capital is that the Company should

always be in a position to meet its current obligations which should properly be

supported by the current assets available with the firm. But maintaining excess

funds in working capital means looking of funds without return.

The firm should manage its current assets in such a ways that the marginal return

on investment in these assets is not less than the cost of capital employed to

finance the current assets.

These are the objects, which can be fulfilled by ready cash i.e. working capital.

The amount of working capital defers with change in circumstances in the same

enterprise as well as it defers from firm to firm. For determining the amount of working


Chapter-5 [192]

capital in a business, one has to study the business under varying circumstances such as a

newly started business a growing business and a matured business.

5.5 STRUCTURE OF WORKING CAPITAL :

The study of structure of working capital is another name for the study of working

capital cycle. In other words, it can be said that the study of structure of working capital

is the study of the elements of current assets viz. inventory, receivable, cash and bank

balances and other liquid resources like short-term or temporary investments. Current

liabilities usually comprise bank borrowings, trade credits, assessed tax and unpaid

dividends or any other such things.

The study of structure of working capital management is another name for the

study of working capital cycle. In other words, we can say that the study of

structure of working capital is the study of the element of current assets and current

liabilities. Current assets consist of inventory, bills receivable, cash is hand, stores, bank

balance and others liquid resources like short term or temporary investment. Current

liabilities consist of bills payable, Creditors‟, unpaid dividend, unpaid taxes and other

such things which are payable within a year. This study of working capital is another

name for study of elements of current assets over current liabilities.

5.5.1 CURRENT ASSETS :-

INVENTORY :-

Inventory is major item of current assets. The management of inventories–raw

material, goods-in-process and finished goods is an important factor in the short-run

liquidity positions and long-term profitability of the company. Inventory and its

importance in meeting customer's needs its management becomes important. Maintaining

inventories also requires investment of capital. In general manufacturing concern has

mainly three kinds of inventories:

RAW MATERIAL INVENTORIES :-

Uncertainties about the future demand for finished goods, together with the cost

of adjusting production to change in demand will cause a financial manager to desire

some level of raw material inventory. In the absence of such inventory, the company


Chapter-5 [193]

could respond to increased demand for finished goods only by incurring explicit clerical

and other transactions costs of ordinary raw material for processing into finished goods

to meet that demand. If changes in demand are frequent, these order costs may become

relatively large.

WORK-IN-PROCESS INVENTORY :-

This inventory is built up due to production cycle. Production cycle is the time-

span between introduction of raw material into production and emergence of finished

product at the completion of production cycle. Till the production cycle is completed,

the stock of work- in-process has to be maintained.

SUPPLIES :-

Stores and spares and other goods, which are consumed in the creation and

distribution of goods and services.

FINISHED GOODS INVENTORY :-

Finished goods are required for reasons similar to those causing the company to

hold raw materials inventories. Customer‟s demand for finished goods is uncertain and

variable. If a company carries no finished goods inventory, unanticipated increases in

customer demand would require sudden increases in the rate of production to meet the

demand. Such rapid increase in the rate of production may be very expensive to

accomplish. Rather than loss of sales, because the additional finished goods are not

immediately available or sustain high costs of rapid additional production, it may be

cheaper to hold a finished goods inventory.

CASH :-

Cash is one of the most important tools of day-to-day operations, because it

is a form of liquid capital, which is available for assignment to any case. It is often the

primary factor, which decides the course of business destiny, the decision to expand a

business may be determined by the availability of cash and the borrowings of funds will

frequently be dictated by cash position.

RECEIVABLES :-

The present popular practice of acquiring commodities and services in

exchange for a promise of future payment rather than exchange of goods desired in

ancient time. The best form of debt is 'book debt'. It is in fact an inter-firm debt. From the


Chapter-5 [194]

seller point, it is trade debtors‟ an asset and from the purchaser point of view, it is trade

creditor as a liability.

MARKETABLE SECURITIES :-

In modern time, it has become a practice with business enterprise to avoid too

much extra cash by investing a portion of their earnings in assets, which are susceptible

to easy conversion into cash. Such assets may be in form of cash, Govt. Securities,

debentures, bonds or shares known as readily marketable securities. Corporate shares

also come in this category.

5.5.2 CURRENT LIABILITIES :-

It is another main aspect of working capital:

CURRENT TRADE CREDITORS’ :-

These debts are payable in cash within a short period of a year or less. Until this

liability falls due for payment it serves as a short-term source of finance.

CURRENT PROVISIONS :-

These are arising in normal course of business operation such as for taxation,

dividends, interest etc. and mature for payment within a short period.

5.6 IMPORTANCE OF WORKING CAPITAL MANAGEMENT:

The aim of working capital management is to manage a firm's current assets e.g.

debtors‟, receivables, cash in hand, cash at bank, stock etc. and firm's current liabilities

viz. Creditors‟, bills payable etc. in best possible manner. If it does not maintain it in

good manner, it is likely to become insolvent and may also become bankrupt. The

current assets should be large enough to cover current liabilities in order to ensure a

reasonable margin of safety.

Each of the current assets must be managed efficiently in order to maintain the

liquidity of a concern while not keeping too high level of any one of them so that the cost

increases. Each of short- term sources of finance must be continuously manageable to

ensure that they are obtained and used in the best possible way. Proper management of

working capital is very important for the success of a concern. "It aims at protecting

the purchasing power of assets and maximizing the return on investment."


Chapter-5 [195]

The manner of management of current assets to a very large extent determines

die success of a concern. Constant management is required to maintain appropriate levels

in the various working capital accounts. Cash and financial budget aid to establishing

proper proportion, sales expansion, dividend declaration, plant expansion, and new

product lines increased salaries and wages, rising price level etc. add strain on working

capital maintenance.

“There are many aspects of working capital management which make it an

important function of the financial manager”. It has been found that the largest portion of

financial manager's time is utilized in the management of working capital.

It is particularly very important for small firms to manage their current assets and

current liabilities very carefully. A fully equipped individual enterprise without adequate

supply of materials to process or without cash to pay for workers' wages and other

current expenses or a store without merchandize to sell is virtually useless. Consequently,

the working capital position of any enterprise may readily become the controlling factor

in determining the scope and character of its operation.

It plays technical role in maximization of the rate of return. An industrial concern

can maximize its rate of return on the capital invested provided it keeps pace with the

scientific and technological developments taking place in the field in which a concern

operates. It is merely common abuse that as soon as some technological and scientific

development takes place, an industrial concern in order to accelerate its profitability

should immediately introduce the same in its productive processes.

There should be a proper planning of liquidity. If there is no proper planning of liquidity

a time may come when a business may tend to drift towards liquidation. The quantum of

working capital funds reflects the solvency of the business but there is no single

barometer to judge the efficiency of running a business.

The adequacy or inadequacy of working capital in a business is to be judged from

the nature of business, its operating cycle, the working capital turnover, the size of

business and other factors. These factors influence the working capital needs of the

business. The ratios may not be a guiding factor for all times to come in the life of a

business. Management's attitude towards liquidity versus profitability is a vital

contributing factor in assessing working capital requirements.


Chapter-5 [196]

In a good management of working capital it is already decided that the funds are

available for making payment for forthcoming obligation. When an enterprise makes

payment of each obligation in time, its goodwill automatically increases. The efficiency

increases by the good management of working capital. The following points throw ample

light on the importance of working capital management.

Risk Minimization

Increase in good-will

Increase in efficiency

Increase in profitability

More productivity of fixed assets

5.7 ANALYSIS OF WORKING CAPITAL POSITION THROUGH

RATIOS:

With a view to appraising the performance in utilization of working capital by the

Automobile industry and the individual companies under study, the analysis of working

capital has been made from the point of view of:

Short term creditors

Efficiency in the use of working capital

Investment in working capital

The collection policy of debts

Short term creditors are primarily concerned with the analysis of short term

financial position or test of liquidity, Which is valuable to management in checking the

efficiency with which working capital is being employed in the business. The following

ratios have been calculated to evaluate the performance of working capital:

Current Ratio

Quick Ratio

Inventory To Working Capital Ratio

Inventory Turnover Ratio

Debtors Turnover

Average Collection Period

Working Capital Turnover


Chapter-5 [197]

5.7.1 CURRENT RATIO:

Meaning :

This Ratio establishes a relationship between current assets and current

liabilities.

Objective :

The objective of computing this ratio is to measure the safety margin

available for short –term creditors.

Components :

1. Current Assets: it refers to those assets which are held for their conversation

into to cash normally within a year.

2. Current Liabilities: it refers to those liabilities which are expected to be

matured normally within a year.

Computation and interpretations :

This ratio is computed by dividing the current assets and current liabilities.

This ratio is usually express as a pure ratio e.g. 2:1. In the form of a formula, this

ratio may be express as follows:

This ratio indicates rupees of current assets available for each rupee of

current liability. Higher the ratio is greater the margin of safety for short-term

creditors. Too high and too low ratio calls for further investigation since the too

high ratio may indicate the presence of idea funds with the firm or the absence of

investment opportunities with the firm and too low ratio may indicate the over

treading or under capitalization if the capital turnover ratio is high. a current ratio

of 2:1 is considered to be a satisfactory ratio. On the basis of this rule , if the

current ratio is 2 or more , its means the firm is adequately liquid and has the

ability to meet its current obligations but if the current ratio is less than 2 , it

means the firms has difficulty in meeting its current obligations.

The Current Ratio of selected companies of Automobile Industry in India

is given in the Table No-5.7.1.1 as follows:


Chapter-5 [198]

TABLE NO-5.7.1.1 CURRENT RATIO

YEAR COMPANY NAME

HMC TMC SIL LML BAL HML MSI MML ALL TML

2003-2004 0.51 1.04 2.62 0.88 3.05 1.33 1.67 2.86 2.13 0.87

2004-2005 0.55 1.13 2.42 0.72 3.30 1.12 2.44 3.26 2.24 1.31

2005-2006 0.77 1.25 2.66 0.54 2.32 0.94 2.48 3.47 1.95 1.66

2006-2007 0.88 1.43 2.76 0.49 2.55 1.20 2.19 3.27 1.63 1.65

2007-2008 0.71 1.53 2.56 0.45 1.58 1.10 1.26 3.17 1.49 1.20

2008-2009 0.66 1.62 1.89 0.45 1.92 0.92 1.82 2.72 1.69 1.09

2009-2010 0.76 1.45 1.54 0.45 0.78 0.78 1.28 3.16 1.60 0.79

2010-2011 0.26 1.22 1.41 0.45 1.05 0.80 1.62 2.00 1.28 1.02

2011-2012 0.60 1.15 1.27 0.31 1.61 0.81 1.32 2.10 1.19 0.98

2012-2013 0.98 1.07 2.08 0.27 1.39 0.72 1.07 2.12 1.28 0.77

Average 0.67 1.29 2.12 0.50 1.96 0.97 1.72 2.81 1.65 1.13

S.D. 0.20 0.20 0.56 0.18 0.84 0.21 0.51 0.55 0.36 0.32

C.V. 30.45 15.79 26.52 36.29 42.71 21.25 29.63 19.69 22.13 28.38

Min 0.26 1.04 1.27 0.27 0.78 0.72 1.07 2.00 1.19 0.77

Max 0.98 1.62 2.76 0.88 3.30 1.33 2.48 3.47 2.24 1.66

(Sources: Annual Reports and Accounts from 2003-2004 to 2012-2013)

GRAPH NO-5.7.1.1 CURRENT RATIO

The above mentioned Table No- 5.7.1.1 and Graph No- 5.7.1.1the indicated a

fluctuating trends of the Current Ratio of selected Automobile industry in India from

2003-2004 to 2012-2013.


Chapter-5 [199]

1. Hero MotoCorp Ltd:

Table No-5.7.1.1 shows that the Current Ratio of the Hero MotoCorp Ltd during

the year from 2003-2004 to 2012-2013, the highest ratio was 0.98 times in the year of

2012-13 and lowest ratio was 0.26 times in the year of 2010-11.

In the year 2003-04 the ratio was 0.51times which has been increased 0.55 times

in 2004-05, further it has been decreased up to 0.26 times in the year of 2010-11. During

the year of 2012-13, it increased up to 0.98 times. It got fluctuated the ratios have been

0.77, 0.88, 0.71, 0.66, 0.76 and 0.60 times during the year of 2005-2010 and 2011-12

respectively. It has been also shown in the Graph No-5.7.1.1.

So, The Average Current Ratio is 0.67 times, The Standard Deviation is 0.20 and

The Co-efficient variance is 30.45% which shows solvency of this company because the

average Current Ratio shows satisfactory Ratio of during the study period.

2. TVS Motor Company:

Table No-5.7.1.1 shows that the Current Ratio of the TVS Motor Company during

the year from 2003-2004 to 2012-2013, the highest ratio was 1.62 times in the year

2008-09 and the lowest ratio was 1.04 times in the year 2003-04.

In the year 2003-04 the ratio was 1.04 times which has been increased 1.13 times

in 2004-05, further it has been increased up to 1.25 and 1.43 times in the year of 2005-06

and 2006-07 respectively. During the year of 2008-09, it increased up to 1.62 times. It got

fluctuated the ratios have been 1.53, 1.45, 1.22, 1.15 and 1.07 times during the year of

2007-08 and 2009-13 respectively. It has been also shown in the Graph No-5.7.1.1.




3. Scooters India Limited:

Table No-5.7.1.1 shows that the Current Ratio of the Scooters India Limited

during the year from 2003-2004 to 2012-2013, the highest ratio was 2.76 times in the

year 2006-07 and the lowest ratio was 1.27 times in the year 2011-12.

In the year 2003-04 the ratio was 2.62 times which has been decreased 2.42 times


and 2006-07 respectively. During the year of 2011-12, it decreased up to 1.27 times. It


Chapter-5 [200]

got fluctuated the ratios have been 2.56, 1.89, 1.54, 1.41 and 2.08 times during the year of





4. LML :

Table No-5.7.1.1 shows that the Current Ratio of the LML during the year from

2003-2004 to 2012-2013, the highest ratio was 0.88 times in the year 2003-04 and the

lowest ratio was 0.27 times in the year 2012-13.


in the year 2004-05, further it has been decreased up to 0.54 and 0.49 times in the year of

200-09 respectively. During the year of 2012-13, it decreased up to 0.27 times. It got

fluctuated and the ratios have been 0.45, 0.45, 0.45, 0.45 and 0.31times during the year of

2007-12 respectively. It has been also shown in the Graph No-5.7.1.1.




5. Bajaj Auto Ltd. :

Table No-5.7.1.1 shows that the Current Ratio of the Bajaj Auto Ltd during the

year from 2003-2004 to 2012-2013, the highest ratio was 3.30 times in the year 2004-05

and the lowest ratio was 0.78 times in the year 2009-10.



2005-07 respectively. During the year of 2009-10 it decreased up to 0.78 times. It got



So, The Average Current Ratio 1.96 times, The Standard Deviation is 0.84 and




Chapter-5 [201]

6. Hindustan Motors Ltd.:

Table No-5.7.1.1 shows that the Current Ratio of the Hindustan Motors Ltd




in the year 2004-05, further it has been decreased up to 0.94 times during the year of

2005-06. In the year of 2012-13, it decreased up to 0.72 times. It got fluctuated the ratios

have been 1.20, 1.10, 0.92, 0.78, 0.80 and 0.81 times during the year of 2006-12





7. Maruti Suzuki India Limited :

Table No-5.7.1.1 shows that the Current Ratio of the Maruti Suzuki India

Limited during the year from 2003-2004 to 2012-2013, the highest ratio was 2.48 times

in the year 2005-06 and the lowest ratio was 1.07 times in the year 2012-13.


in the year 2004-05, Further it has been decreased up to 1.07 times during the year of

2012-13. During the year of 2005-06, it increased up to 2.48 times. It got fluctuated the

ratios have been 2.19, 1.26, 1.82, 1.28, 1.62 and 1.32 times during the year of 2006-2012





8. Mahindra and Mahindra Limited :

Table No-5.7.1.1 shows that the Current Ratio of the Mahindra and Mahindra





2010-11. During the year of 2005-07, it increased up to 3.47 and 3.27 times. It got


Chapter-5 [202]






9. Ashok Leyland :

Table No-5.7.1.1 shows that the Current Ratio of the Ashok Leyland during the






fluctuated the ratios were 1.49, 1.69, 1.60, 1.28 and 1.28 times during the year of 2007-11

and 2012-13 respectively. It has been also shown in the Graph No-5.7.1.1.




10. Tata Motors Limited :

Table No-5.7.1.1 shows that the Current Ratio of the Tata Motors Limited during

the year from 2003-2004 to 2012-13, the highest ratio was 1.66 times in the year 2005-

06 and the lowest ratio was 0.77 times in the year 2012-13.


in the year 2004-05, further it has been increased up to 1.66 and 1.65 times in the year

of 2005-07 respectively. During the year of 2012-13, it decreased up to 0.77 times. It got

fluctuated the ratios were 1.20, 1.09, 0.79, 1.02 and 0.98 times during the year of 2007-12


So, the Average Current Ratio 1.13 times, The Standard Deviation is 0.32 and




Chapter-5 [203]

ANOVA TEST OF CURRENT RATIO :

Hypothesis:

Ho: Null Hypothesis:

There is no significant difference in Current Ratio of automobile

industry under study.

H1: Alternative Hypothesis:

There is significant difference in Current Ratio of automobile


Level of Significance: 5%

Source of

Variation

Sum of

Square

Degrees of

Freedom

Mean

Square F-Value P-value F-critical

Between

Groups 7.920113 9 0.880013 1.434508 0.185359 1.985595

Within

Groups 55.21137 90 0.61346

Total 63.13148 99

Degree of freedom = 100-1= 99

Table Value of „F‟ =1.98

Calculate Value of „F‟ = 1.43

Fcal < Ftab

1.43 < 1.98

Fcal < Ftab

Table No-5.7.1.2 indicates the calculate value of „F‟ is 1.434508 and the table

value of „F‟ at 5% levels of significance is 1.98. So, the calculate value „F‟ which is less

than the table value. It indicates that the Null Hypothesis is accepted and Alternate

Hypothesis is rejected. So, it indicates that there is no significant difference in Current

Ratio of selected automobile industry under study for the period.

TABLE NO-5.7.1.2

CURRENT RATIO

ONE WAY ANOVA TEST


Chapter-5 [204]

5.7.2 QUICK RATIO:

Meaning:

This Ratio establishes a relationship between quick assets and quick

liabilities.

Objective:

The objective of computing this ratio is to measure the ability of the firm

to meet its short term obligation as and when due without relying upon the

realization of stock.

Components :

1. Quick Assets: Current assets which can be converted into cash immediately or

at a short notice without a loss of value.

2. Quick Liabilities: Quick liabilities refer to those liabilities which are expected

to be matured normally within a year.

Computation and interpretations:

This ratio is computed by dividing the quick assets and quick liabilities.

This ratio is usually express as a pure ratio e.g. 2:1. In the form of a formula, this

ratio may be express as follows:

This ratio indicates rupees of quick assets available for each rupee of

current liability. Traditionally, a quick ratio of 1:1 is considered to be a

satisfactory ratio. However, this traditional rule should not be used blindly since a

firm having a quick ratio of more than 1(one), may not be meeting its short term

obligations in time if its current assets consist of doubtful and slow paying debtors

while a firm having quick ratio of less than 1(one), may be meeting is short term

obligation in time because of its very efficiency inventory management.

The quick Ratio of selected companies of Automobile Industry in India is

given in the Table No-5.7.2.1 as follows:


Chapter-5 [205]

TABLE NO-5.7.2.1 QUICK RATIO

YEAR COMPANY NAME


2003-2004 0.32 0.52 1.92 0.52 2.75 0.69 1.30 2.29 1.40 0.60

2004-2005 0.34 0.62 1.73 0.37 3.01 0.74 1.89 2.64 1.65 1.01

2005-2006 0.55 0.57 1.79 0.21 2.10 0.53 1.90 2.88 1.16 1.31

2006-2007 0.61 0.74 1.48 0.18 2.34 0.72 1.84 2.71 0.99 1.26

2007-2008 0.47 0.73 1.25 0.17 1.25 0.63 0.84 2.56 0.86 0.92

2008-2009 0.45 1.04 1.09 0.20 1.64 0.46 1.52 2.24 0.98 0.83

2009-2010 0.64 1.01 0.88 0.17 0.56 0.44 0.87 2.61 0.97 0.59

2010-2011 0.14 0.64 0.63 0.17 0.80 0.37 1.22 1.45 0.57 0.66

2011-2012 0.34 0.51 0.64 0.10 1.34 0.43 0.95 1.54 0.57 0.58

2012-2013 0.68 0.58 1.06 0.09 1.14 0.24 0.72 1.56 0.71 0.36

Average 0.45 0.70 1.25 0.22 1.69 0.52 1.31 2.25 0.99 0.81

S.D. 0.17 0.19 0.47 0.13 0.83 0.17 0.46 0.54 0.35 0.31

C.V. 37.77 27.21 37.48 60.10 48.85 31.52 35.29 23.93 35.15 38.38

Min 0.14 0.51 0.63 0.09 0.56 0.24 0.72 1.45 0.57 0.36

Max 0.68 1.04 1.92 0.52 3.01 0.74 1.90 2.88 1.65 1.31


GRAPH NO-5.7.2.1 QUICK RATIO

The above mentioned Table No- 5.7.2.1 and Graph No- 5.7.2.1 the indicated a

fluctuating trends of the Quick Ratio of selected Automobile industry in India from 2003-

2004 to 2012-2013.


Chapter-5 [206]


Table No-5.7.2.1 shows that the Quick Ratio of the Hero MotoCorp Ltd during

the year from 2003-2004 to 2012-2013, the highest ratio was 0.68 times in the year of

2012-13 and lowest ratio was 0.14 times in the year of 2010-11.



respectively. During the year of 2010-11, it increased up to 0.14 times. It got fluctuated

the ratios have been 0.47, 0.45, 0.64, 0.34 and 0.68 times during the year of 2007-10 and


So, The Average Quick Ratio is 0.45 times, The Standard Deviation is 0.17 and


average Quick Ratio shows satisfactory Ratio of during the study period.

2. TVS Motor Company :

Table No-5.7.2.1 shows that the Quick Ratio of the TVS Motor Company Ltd






the ratios have been 0.73, 1.04, 1.01, 0.64 and 0.58 times during the year of 2007-2011






Table No-5.7.2.1 shows that the Quick Ratio of the Scooters India Limited during

the year from 2003-2004 to 2012-2013, the highest ratio was 1.92 times in the year



in 2004-05, further it has been increased up to 1.79 times in the year of 2005-06. During

the year of 2010-11, it decreased up to 0.63 times. It got fluctuated the ratios have been


Chapter-5 [207]






4. LML :

Table No-5.7.2.1 shows that the Quick Ratio of the LML during the year from

2003-2004 to 2012-2013, the highest ratio was 0.52 times in the year 2003-04 and the

lowest ratio was 0.09 times in the year 2012-13.


in the year 2004-05, further it has been decreased up 0.21, 0.18 and 0.17times in the

year of 2005-08 respectively. During the year of 2012-13, it decreased up to 0.09 times.

It got fluctuated and the ratios have been 0.20, 0.17, 0.17 and 0.10 times during the year

of 2008-11 respectively. It has been also shown in the Graph No-5.7.2.1.





Table No-5.7.2.1 shows that the Quick Ratio of the Bajaj Auto Ltd during the




in the year 2004-05, further it has been decreased up to 2.10 times in the year of 2005-

06. During the year of 2009-10, it decreased up to 0.56 times. It got fluctuated the ratios

have been 2.34, 1.25, 1.64,0.80,1.34 and 1.14 times during the year of 2006-09 and 2010-

13 respectively. It has been also shown in the Graph No-5.7.2.1.

So, The Average Quick Ratio 1.69 times, The Standard Deviation is 0.83 and The

Co-efficient variance is 48.85% which shows solvency of this company because the


6. Hindustan Motors Limited :

Table No-5.7.2.1 shows that the Quick Ratio of the Hindustan Motors Limited


Chapter-5 [208]






fluctuated the ratios have been 0.72, 0.63, 0.46, 0.44, 0.37 and 0.43 during the year of


So, The Average Quick Ratio is 0.52 times , The Standard Deviation is 0.17 and



7. Maruti Suzuki India Limited:

Table No-5.7.2.1 shows that the Quick Ratio of the Maruti Suzuki India Limited




in the year 2004-05, further it has been decreased up to 1.90 and 1.84 times during the

year of 2005-07 respectively. During the year of 2012-13, it increased up to 0.72 times.

It got fluctuated the ratios have been 0.84, 1.52, 0.87, 1.22 and 0.95 times during the

year of 2007-2012 respectively. It has been also shown in the Graph No-5.7.2.1.

So, The Average Quick Ratio 1.31 times, The Standard Deviation is 0.46 and The

Co-efficient variance is 35.29% which shows solvency of this company because the



Table No-5.7.2.1 shows that the Quick Ratio of the Mahindra and Mahindra




in the year 2004-05, further it has been increased up to 2.88 and 2.71 times during the


It got fluctuated the ratios have been 2.56, 2.24, 2.61, 1.54 and 1.56 times during the year

of 2007-10 and 2011-13respectively. It has been also shown in the Graph No-5.7.2.1.


Chapter-5 [209]




9. Ashok Leyland :

Table No-5.7.2.1 shows that the Quick Ratio of the Ashok Leyland during the




in the year 2004-05, further it has been decreased up to 1.16, 0.99 and 0.86 times in the

year of 2005-08 respectively. During the year of 2010-11 and 2011-12, it decreased up to

0.57 and 0.57 times. It got fluctuated the ratios were 0.98, 0.97 and 0.71 times during the

year of 2007-09 and 2012-13 respectively. It has been also shown in the Graph

No-5.7.2.1.





Table No-5.7.2.1 shows that the Quick Ratio of the Tata Motors Limited during

the year from 2003-2004 to 2012-13, the highest ratio was 1.31 times in the year 2005-

06 and the lowest ratio was 0.36 times in the year 2012-13.


in the year 2004-05, further it has been increased up to 1.31 times in the year of 2005-06.

During the year of 2012-13, it decreased up to 0.36 times. It got fluctuated the ratios were

1.26, 0.92, 0.83, 0.59, 0.66 and 0.58 times during the year of 2006-12 respectively. It has

been also shown in the Graph No-5.7.2.1.





Chapter-5 [210]

ANOVA TEST OF QUICK RATIO :

Hypothesis:


There is no significant difference in Quick Ratio of automobile



There is significant difference in Quick Ratio of automobile


Level of Significance: 5 %

Source of

Variation

Sum of

Square

Degrees of

Freedom

Mean


Between

Groups 6.859109 9 0.762123 1.585968 0.131397 1.985595

Within

Groups 43.24873 90 0.480541

Total 50.10783 99




Fcal < Ftab

1.59 < 1.98

Fcal < Ftab

Table No-5.7.2.2 indicates the calculate value of „F‟ is 1.585968and the table



Hypothesis is rejected. So, it indicates that there is no significant difference in Quick

Ratio of selected automobile industry under study for the period.

TABLE NO-5.7.2.2

QUICK RATIO

ONE WAY ANOVA TEST


Chapter-5 [211]

5.7.3 INVENTORY TO WORKING CAPITAL RATIO:

Meaning :

This Ratio establishes a relationship between inventory and working

capital.

Objective :

The objective of computing this ratio is to measure the amount of working

capital invested din inventory.

Components :

1. Inventory: it refers to raw material, semi finished good and finished goods.

2. Working Capital = Current Assets- Current Liabilities.


This ratio is computed by dividing the inventory and working Capital or

net current Assets. This ratio is usually express as a pure ratio e.g. 3:1. In the form

of a formula, this ratio may be express as follows:

This ratio indicates that inventory should not over the working capital.

Around three quarter i.e.0.75 times of working capital generally preferred.

Thus, an enterprise should have neither a very high nor a very low ratio; it

should have a satisfactory ratio. To judge whether the ratio is satisfactory or not, it

should be compare with its own past ratio or with the ratio of similar firm in the

same industry or with the industry average.

The inventory to working capital of selected companies of Automobile

Industry in India is given in the Table No-5.7.3.1 as follows:


Chapter-5 [212]

TABLE NO-5.7.3.1 INVENTORY TO WORKING CAPITAL RATIO

YEAR COMPANY NAME


2003-2004 -0.38 14.42 0.44 -3.24 0.15 1.94 0.54 0.31 0.65 -2.16

2004-2005 -0.44 3.92 0.48 -1.26 0.12 3.25 0.38 0.27 0.47 0.96

2005-2006 -0.90 2.73 0.53 -0.73 0.17 -6.53 0.39 0.24 0.83 0.54

2006-2007 -2.14 1.62 0.73 -0.62 0.13 2.39 0.29 0.25 1.02 0.60

2007-2008 -0.82 1.51 0.84 -0.51 0.58 4.58 1.62 0.28 1.29 1.41

2008-2009 -0.64 0.94 0.90 -0.46 0.30 -5.75 0.36 0.28 1.03 2.87

2009-2010 -0.47 0.97 1.22 -0.51 -1.01 -1.50 1.45 0.26 1.05 -0.95

2010-2011 -0.17 2.60 1.90 -0.51 4.91 -2.22 0.65 0.55 2.57 18.48

2011-2012 -0.66 4.23 2.32 -0.31 0.44 -1.94 1.16 0.51 3.25 -24.82

2012-2013 -12.45 7.37 0.94 -0.25 0.65 -1.68 5.09 0.50 2.05 -1.80

Average -1.91 4.03 1.03 -0.84 0.64 -0.74 1.19 0.34 1.42 -0.49

S.D. 3.74 4.14 0.62 0.89 1.57 3.72 1.45 0.12 0.90 10.41

C.V. -196.36 102.63 60.70 -105.78 243.13 -500.33 121.43 35.75 63.61 -2140.24

Min -12.45 0.94 0.44 -3.24 -1.01 -6.53 0.29 0.24 0.47 -24.82

Max -0.17 14.42 2.32 -0.25 4.91 4.58 5.09 0.55 3.25 18.48


GRAPH NO-5.7.3.1 INVENTORY TO WORKING CAPITAL RATIO


fluctuating trends of the Inventory to Working Capital Ratio of selected Automobile

industry in India from 2003-2004 to 2012-2013.


Chapter-5 [213]


Table No-5.7.3.1 shows that the Inventory to Working Capital Ratio of the Hero

MotoCorp Ltd during the year from 2003-2004 to 2012-2013, the highest ratio was -0.17

times in the year of 2010-11 and lowest ratio was -12.45 times in the year of 2012-13.

In the year 2003-04 the ratio was -0.38 times which has been decreased -0.44

times in 2004-05, further it has been decreased up to -0.90 times in the year of 2005-06.

During the year of 2012-13, it decreased up to -12.45 times. It got fluctuated the ratios

have been -2.14, -0.82, -0.64, -0.47,-0.17 and -0.66 times during the year of 2006-12


So, The Average Inventory to Working Capital Ratio is -1.91 times, The Standard

Deviation is 3.74 and The Co-efficient variance is -196.36% which shows solvency of

this company because the average Inventory to Working Capital Ratio shows

dissatisfactory Ratio of during the study period.


Table No-5.7.3.1 shows that the Inventory to Working Capital Ratio of the TVS

Motor Company during the year from 2003-2004 to 2012-2013, the highest ratio was

14.42 times in the year 2003-04 and the lowest ratio was 0.94 times in the year 2008-09.

In the year 2003-04 the ratio was 14.42 times which has been decreased 3.92

times in 2004-05, further it has been decreased up to 2.73, 1.62 and 1.51 times in the

year of 2005-08 respectively. During the year of 2008-09, it decreased up to 0.94 times. It

got fluctuated the ratios have been 0.97, 2.60, 4.23 and 7.37 times during the year of


So, The Average Inventory to Working Capital Ratio is 4.03 times, The Standard

Deviation is 4.14 and The Co-efficient variance is 102.63% which shows solvency of this

company because the average Inventory to Working Capital Ratio shows satisfactory

Ratio of during the study period.

3. Scooters India Limited :

Table No-5.7.3.1 shows that the Inventory to Working Capital Ratio of the

Scooters India Limited during the year from 2003-2004 to 2012-2013, the highest ratio


Chapter-5 [214]

was 2.32 times in the year 2011-12 and the lowest ratio was 0.44 times in the year

2003-04.


in 2004-05, further it has been increased up to 0.53, 0.73, and 0.84 times in the year of

2005-08 respectively. During the year of 2011-12, it increased up to 2.32 times. It got

fluctuated the ratios have been 0.90, 1.22, 1.90 and 0.94 times during the year of 2008-11






4. LML:

Table No-5.7.3.1 shows that the Inventory to Working Capital Ratio of the LML

during the year from 2003-2004 to 2012-2013, the highest ratio was -0.25 times in the

year 2012-13 and the lowest ratio was -3.24 times in the year 2003-04.

In the year 2003-04 the ratio was -3.24 times which has been increased -1.26

times in the year 2004-05, further it has been increased up to -0.73 and -0.62 times in the

year of 2005-07 respectively. During the year of 2012-13, it increased up to -0.25 times It

got fluctuated and the ratios have been -0.51, -0.46, -0.51, -0.51, and -0.31 times during

the year of 2007-12 respectively. It has been also shown in the Graph No-5.7.3.1.






Table No-5.7.3.1 shows that the Inventory to Working Capital Ratio of the Bajaj

Auto Ltd during the year from 2003-2004 to 2012-2013, the highest ratio was 4.91 times

in the year 2010-11 and the lowest ratio was -1.01 times in the year 2009-10.


Chapter-5 [215]



During the year of 2010-11 it increased up to 4.91 times. It got fluctuated the ratios have

been 0.13, 0.58, 0.30, -1.01, 0.44 and 0.65 times during the year of 2006-10 and 2011-13








Hindustan Motors Limited during the year from2003-2004 to 2012-2013,the highest ratio

was 4.58 times in the year 2007-08 and the lowest ratio was -6.53 times in the year

2005-06.


in the year 2004-05, further it has been decreased up to -6.53 times during the year of


ratios have been2.39, -5.75, -1.50, -2.22, -1.94 and -1.68 times during the year of 2006-07







Table No-5.7.3.1 shows that the Inventory to Working Capital Ratio of the Maruti

Suzuki India Ltd during the year from 2003-2004 to 2012-2013, the highest ratio was





Chapter-5 [216]


fluctuated the ratios have been 1.62, 0.36, 1.45, 0.65, 1.16 times during the year of 2007-

12 respectively. It has been also shown in the Graph No-5.7.3.1.







Mahindra and Mahindra Ltd during the year from 2003-2004 to 2012-2013, the highest

ratio was 0.55 times in the year 2010-11 and the lowest ratio was 0.24 times in the year

2005-06.





2007-10 and 2011-13respectively. It has been also shown in the Graph No-5.7.3.1.





9. Ashok Leyland :

Table No-5.7.3.1 shows that the Inventory to Working Capital Ratio of the Ashok

Leyland during the year from 2003-2004 to 2012-2013, the highest ratio was 3.25 times



in the year 2004-05, further it has been increased up to 0.83,1.02 and 1.29 times in the

year of 2005-08 respectively. During the year of 2011-12, it increased up to 3.25 times. It

got fluctuated the ratios were 1.03, 1.05, 2.57 and 2.05 times during the year of 2008-11


Chapter-5 [217]







Table No-5.7.3.1 shows that the Inventory to Working Capital Ratio of the Tata

Motors Limited during the year from 2003-2004 to 2012-13, the highest ratio was 18.48

times in the year 2010-11 and the lowest ratio was -24.82 times in the year 2011-12.

In the year 2003-04 the ratio was -2.16 times which has been increased 0.96 times

in the year 2004-05, further it has been decreased up to 0.54 times in the year of 2005-06


the ratios were 0.60, 1.41, 2.87, -0.95, -24.82 and -1.80 times during the year of 2006-10

and 2011-13 respectively. It has been also shown in the Graph No-5.7.3.1



this company because the average Inventory to Working Capital Ratio shows satisfactory


ANOVA TEST OF INVENTORY TO WORKING CAPITAL RATIO :

Hypothesis:


There is no significant difference in Inventory to Working Capital

Ratio of automobile industry under study.


There is significant difference in Inventory to Working Capital


Level of Significance: 5 %


Chapter-5 [218]

Source of

Variation

Sum of

Square

Degrees of

Freedom

Mean


Between

Groups 122.7809 9 13.64233 0.787329 0.628601 1.985595

Within

Groups 1559.462 90 17.32736

Total 1682.243 99




Fcal < Ftab

0.79 < 1.98

Fcal < Ftab




Hypothesis is rejected. So, it indicates that there is no significant difference in Inventory

to Working Capital Ratio of selected automobile industry under study for the period.

TABLE NO-5.7.3.2

INVENTORY TO WORKING CAPITAL RATIO

ONE WAY ANOVA TEST


Chapter-5 [219]

5.7.4 STOCK TURNOVER RATIO:

Meaning :

This Ratio establishes a relationship between Cost of Goods Sold and

Average Stock

Objective :

The objective of computing this ratio is to determine the efficiency with

which the Stock is converted into sales

Components :

1. Cost of Goods sold =Net sales –Gross Profit

2. Average Stock = (opening Stock +closing Stock)/2


This ratio is computed by dividing the cost of goods sold by the average

Stock. This ratio is usually express as an „x‟ number of times. In the form of a

formula, this ratio may be express as follows:

This ratio indicates the speed with which the Stock is converted into sales.

In general, a high ratio indicate efficient performance since an improvement in the

ratio shows that either the same volume of sales has been minted with a lower

investment in stocks, or the volume of sales has increased without any increase in

the amount of stock. A too high ratio may be the result of very low Stock levels

which may result in frequent stock-outs and thus the firm may incur high stock

out costs.

Thus, a firm should have a satisfactory ratio. To judge whether the ratio is

satisfactory or not, it should be compare with its own past ratio or with the ratio of

similar firm in the same industry or with the industry average.

The Stock Turnover Ratio of selected companies of Automobile Industry

in India is given in the Table No-5.7.4.1 as follows:


Chapter-5 [220]

TABLE NO-5.7.4.1 STOCK TURNOVER RATIO

YEAR COMPANY NAME


2003-2004 24.08 11.73 2.96 3.88 18.48 4.49 16.97 8.43 6.67 9.73

2004-2005 31.15 11.50 3.99 4.97 21.80 8.06 16.62 6.98 7.04 10.90

2005-2006 33.35 10.06 3.84 4.21 23.69 5.73 12.96 6.43 6.46 9.81

2006-2007 33.89 9.75 4.02 1.08 25.81 6.66 15.47 6.84 6.66 10.65

2007-2008 29.58 7.71 3.52 1.43 22.30 6.89 17.18 6.77 6.21 10.28

2008-2009 32.17 9.74 4.95 1.99 21.36 8.33 18.81 6.63 4.47 10.00

2009-2010 33.37 13.71 6.07 3.09 22.84 8.50 23.76 7.13 4.49 12.07

2010-2011 34.52 14.51 5.08 5.95 24.01 7.42 25.15 6.97 5.38 12.75

2011-2012 32.68 12.06 5.56 5.16 25.06 6.27 20.42 8.47 5.56 12.11

2012-2013 30.63 12.38 4.77 2.86 23.68 10.91 21.63 7.84 5.95 9.46

Average 31.54 11.31 4.48 3.46 22.90 7.33 18.90 7.25 5.89 10.78

S.D. 3.04 2.04 0.97 1.65 2.08 1.77 3.82 0.73 0.90 1.15

C.V. 9.64 18.02 21.62 47.68 9.10 24.11 20.22 10.14 15.28 10.72

Min 24.08 7.71 2.96 1.08 18.48 4.49 12.96 6.43 4.47 9.46

Max 34.52 14.51 6.07 5.95 25.81 10.91 25.15 8.47 7.04 12.75


GRAPH NO-5.7.4.1 STOCK TURNOVER RATIO


fluctuating trends of the Stock Turnover Ratio of selected Automobile industry in India

from 2003-2004 to 2012-2013.


Chapter-5 [221]


Table No-5.7.4.1 shows that the Stock Turnover Ratio of the Hero MotoCorp Ltd


year of 2010-11 and lowest ratio was 24.08 times in the year of 2003-04.

In the year 2003-04 the ratio was 24.08 times which has been increased 31.15

times in 2004-05, further it has been increased up to 33.35 and 33.89 times in the year of


fluctuated the ratios have been 32.17, 33.37, 34.52, 32.68 and 30.63 times during the year

of 2008-2013 respectively. It has been also shown in the Graph No-5.7.4.1.

So, The Average Stock Turnover Ratio is 31.54 times, The Standard Deviation is

3.04 and The Co-efficient variance is 9.64% which shows solvency of this company

because the average Stock Turnover Ratio shows satisfactory Ratio of during the study

period.


Table No-5.7.4.1 shows that the Stock Turnover Ratio of the TVS Motor

Company Ltd during the year from 2003-2004 to 2012-2013, the highest ratio was 14.51

times in the year 2010-11 and the lowest ratio was 7.71 times in the year 2007-08.


times in 2004-05, further it has been decreased up to 10.06, 9.75 and 7.71 times in the


It got fluctuated the ratios have been 9.74, 13.71, 12.06 and 12.38 times during the year

of 2008-10 and 2011-13 respectively. It has been also shown in the Graph No-5.7.4.1.




period.


Table No-5.7.4.1 shows that the Stock Turnover Ratio of the Scooters India



Chapter-5 [222]





the ratios have been 3.52, 4.95, 5.08, 5.56 and 4.77 times during the year of 2007-09 and





period.

4. LML :

Table No-5.7.4.1 shows that the Stock Turnover Ratio of the LML during the year

from 2003-2004 to 2012-2013, the highest ratio was 5.95 times in the year 2010-11 and

the lowest ratio was 1.08 times in the year 2006-07.


in the year 2004-05, further it has been decreased up to 4.21 and1.08 times in the year of


fluctuated and the ratios have been 1.43, 1.99, 3.09, 5.16 and 2.86 times during the year

of 2007-10 and 2011-13 respectively. It has been also shown in the Graph No-5.7.4.1.




period.


Table No-5.7.4.1 shows that the Stock Turnover Ratio of the Bajaj Auto Ltd




times in the year 2004-05, further it has been decreased up to 23.69 times in the year of


Chapter-5 [223]


ratios have been 22.30, 21.36, 22.84, 24.01, 25.06 and 23.68 times during the year of





period.


Table No-5.7.4.1 shows that the Stock Turnover Ratio of the Hindustan Motors


in the year 2012-13 and the lowest ratio was 4.49 in the year 2003- 2004.









period.


Table No-5.7.4.1 shows that the Stock Turnover Ratio of the Maruti Suzuki India




times in the year 2004-05, further it has been decreased up to 12.96 times during the year

of 2005-06. During the year of 2010-11, it decreased up to 25.15 times. It got fluctuated

the ratios have been 15.47, 17.18, 18.81, 23.76, 20.42 and 21.63 times during the year of



Chapter-5 [224]




period.


Table No-5.7.4.1 shows that the Stock Turnover Ratio of the Mahindra and

Mahindra Limited during the year from 2003-2004 to 2012-2013, the highest ratio was


In the year 2003-04 the ratio was 8. 43 times which has been decreased 6.98 times








period.

9. Ashok Leyland :

Table No-5.7.4.1 shows that the Stock Turnover Ratio of the Ashok Leyland




in the year 2004-05, further it has been decreased up to 6.46 times in the year of 2005-06.

During the year of 2008-09, it decreased up to 4.47 times. It got fluctuated the ratios were




Chapter-5 [225]




period.


Table No-5.7.4.1 shows that the Stock Turnover Ratio of the Tata Motors Limited

during the year from 2003-2004 to 2012-13, the highest ratio was 12.75 times in the year




During the year of 2009-10, it decreased up to 12.75 times. It got fluctuated the ratios

were 10.65, 10.28, 10.00, 12.07, 12.11 and 9.46 times during the year of 2006-10 and





period.

ANOVA TEST OF STOCK TURNOVER RATIO :

Hypothesis:


There is no significant difference in Stock Turnover Ratio of

automobile industry under study.


There is significant difference in Stock Turnover Ratio of




Chapter-5 [226]

Source of

Variation

Sum of

Square

Degrees of

Freedom

Mean


Between

Groups 108.0723 9 12.00803 0.137335 0.998498 1.985595

Within

Groups 7869.26 90 87.43622

Total 7977.332 99




Fcal < Ftab

0.14 < 1.98

Fcal < Ftab




Hypothesis is rejected. So, it indicates that there is no significant difference in Stock

Turnover Ratio of selected automobile industry under study for the period.

TABLE NO-5.7.4.2

STOCK TURNOVER RATIO

ONE WAY ANOVA TEST


Chapter-5 [227]

5.7.5 DEBTORS TURNOVER RATIO:

Meaning :

This Ratio establishes a relationship between net credit sales and average

debtors + Bills Receivable.

Objective :


which the trade debtors are converted into cash

Components :

1. Net credit sales which mean gross credit sales minus sales return.

2. Average Debtors and Bill Receivable


This ratio is computed by dividing the Net Credit sales by the Average

Debtors and Bill Receivable. This ratio is usually express as a „x‟ number of

times. In the form of a formula, this ratio may be express as follows:

This ratio indicates both the quality of Debtors and the credit collection

efforts of the enterprise. It‟s also the speed with which the Debtors are converted

into cash in the year. In general, a high ratio indicates the shorter collection period

which implies prompt payments by Debtors and a low ratio indicates a longer

collection period which implies delayed payment by Debtors.

Thus, an enterprise should have neither a very high nor a very low ratio; it

should have a satisfactory ratio. To judge whether the ratio is satisfactory or not, it

should be compare with its own past ratio or with the ratio of similar firm in the

same industry or with the industry average.

The Debtors Turnover Ratio of selected companies of Automobile



Chapter-5 [228]

TABLE NO-5.7.5.1 DEBTORS TURNOVER RATIO

YEAR COMPANY NAME


2003-2004 62.94 54.18 11.22 26.45 31.60 6.89 13.46 8.95 7.45 16.52

2004-2005 111.26 62.89 8.02 39.09 36.97 15.84 17.06 8.74 9.83 24.18

2005-2006 70.19 66.19 7.23 45.15 31.26 9.70 19.44 7.82 12.07 26.79

2006-2007 40.07 45.46 10.94 11.58 22.35 14.89 21.29 7.22 15.46 36.28

2007-2008 32.67 32.31 24.04 16.00 21.51 16.67 25.75 6.82 17.66 29.84

2008-2009 55.07 27.25 27.78 26.46 26.62 20.16 25.94 6.68 9.14 21.53

2009-2010 122.00 21.69 40.26 42.18 38.48 42.43 33.86 8.63 7.48 19.47

2010-2011 162.34 25.59 53.96 76.13 54.72 44.00 45.47 9.94 10.44 18.85

2011-2012 117.05 29.84 76.75 261.13 49.90 26.77 40.96 12.43 11.17 20.45

2012-2013 50.72 27.78 75.74 241.04 33.60 35.80 37.53 13.07 9.91 19.78

Average 82.43 39.32 33.59 78.52 34.70 23.31 28.07 9.03 11.06 23.37

S.D. 42.86 16.51 27.05 92.84 10.88 13.32 10.84 2.21 3.28 6.04

C.V. 52.00 41.99 80.53 118.23 31.36 57.14 38.60 24.51 29.63 25.83

Min 32.67 21.69 7.23 11.58 21.51 6.89 13.46 6.68 7.45 16.52

Max 162.34 66.19 76.75 261.13 54.72 44.00 45.47 13.07 17.66 36.28


GRAPH NO-5.7.5.1 DEBTORS TURNOVER RATIO

The above mentioned Table No-5.7.5.1 and Graph No-5.7.5.1 the indicated a

fluctuating trends of the Debtors Turnover Ratio of selected Automobile industry in India

from 2003-2004 to 2012-2013.


Chapter-5 [229]


Table No-5.7.5.1 shows that the Debtors Turnover Ratio of the Hero MotoCorp

Ltd during the year from 2003-2004 to 2012-2013, the highest ratio was 162.34 times in

the year of 2010-11 and lowest ratio was 32.67 times in the year of 2007-08.


times in 2004-05, further it has been decreased up to 70.19 times in the year of 2005-06.

During the year of 2010-11, it increased up to 162.34 times. It got fluctuated the ratios

have been 40.07, 32.67, 55.07, 122.00, 117.05 and 50.72 times during the year of 2006-

10 and 2011-2013 respectively. It has been also shown in the Graph No-5.7.5.1.

So, The Average Debtors Turnover Ratio is 82.43 times, The Standard Deviation

is 42.86 and The Co-efficient variance is 52.00% which shows solvency of this company

because the average Debtors Turnover Ratio shows satisfactory Ratio of during the study

period.


Table No-5.7.5.1 shows that the Debtors Turnover Ratio of the TVS Motor

Company during the year from 2003-2004 to 2012-2013, the highest ratio was 66.19



times in 2004-05, further it has been increased up to 66.19 times in the year of 2005-06.

During the year of 2009-10, it decreased up to 21.69 times. It got fluctuated the ratios

have been 45.46, 32.31, 27.25, 25.59, 29.84 and 27.78 times during the year of 2006-

2009 and 2010-13 respectively. It has been also shown in the Graph No-5.7.5.1.




period.


Table No-5.7.5.1 shows that the Debtors Turnover Ratio of the Scooters India



Chapter-5 [230]



times in 2004-05, further it has been decreased up to 7.23 times in the year of 2005-06.

During the year of 2011-12, it increased up to 76.75 times It got fluctuated the ratios have

been 10.94, 24.04, 27.78, 40.26, 53.96 and 75.74 times during the year of 2006-11 and





period.

4. LML:

Table No-5.7.5.1 shows that the Debtors Turnover Ratio of the LML during the

year from 2003-2004 to 2012-2013, the highest ratio was 261.13 times in the year



times in the year 2004-05, further it has been increased up to 45.15 times in the year of

2005-06. During the year of 2011-12, it decreased up to 261.13 times It got fluctuated

and the ratios have been 11.58, 16.00, 26.46, 42.18, 76.13 and 241.04 times during the

year of 2006-11 and 2012-13 respectively. It has been also shown in the Graph

No-5.7.5.1.


is 92.84 and The Co-efficient variance is 118.23% which shows solvency of this

company because the average Debtors Turnover Ratio shows satisfactory Ratio of during

the study period.


Table No-5.7.5.1 shows that the Debtors Turnover Ratio of the Bajaj Auto Ltd




Chapter-5 [231]


times in the year 2004-05, further it has been decreased up to 31.26, 22.35 and 21.51

times in the year of 2005-08 respectively. During the year of 2010-11 it increased up to

54.72 times. It got fluctuated the ratios have been 26.62, 38.48, 49.90 and 33.60 times

during the year of 2008-10 and 2011-13 respectively. It has been also shown in the Graph

No-5.7.5.1.




period.


Table No-5.7.5.1 shows that the Debtors Turnover Ratio of the Hindustan Motors






ratios have been 14.89, 16.67, 20.16, 42.43, 26.77 and 35.80 times during the year of

2006-10 and 2011-13 respectively. It has been also shown in the Graph No-5.7.5.1




period.


Table No-5.7.5.1 shows that the Debtors Turnover Ratio of the Mahindra and


45.47 times in the year 2010-11 and the lowest ratio was 13.46 times in the year

2003-04.


Chapter-5 [232]


times in the year 2004-05, further it has been increased up to 19.44, 21.29 and 25.75

times during the year of 2005-08 respectively. During the year of 2010-11, it increased up

to 45.47 times. It got fluctuated the ratios have been 25.94, 33.86, 40.96 and 37.53 times

during the year of 2008-10 and 2011-13 respectively. It has been also shown in the Graph

No-5.7.5.1.




period.


Table No-5.7.5.1 shows that the Debtors Turnover Ratio of the Mahindra and




in the year 2004-05, further it has been decreased up to 7.82, 7.22, 6.82 and 6.68 times

during the year of 2005-09 respectively. During the year of 2012-13, it increased up to

13.07 times. It got fluctuated the ratios have been 8.63, 9.94 and 12.43 times during the

year of 2009-12 respectively. It has been also shown in the Graph No-5.7.5.1.

So, The Average Debtors Turnover Ratio is 9.03 times, The Standard Deviation is



period.

9. Ashok Leyland :

Table No-5.7.5.1 shows that the Debtors Turnover Ratio of the Ashok Leyland




in the year 2004-05, further it has been increased up to 12.07 and 15.46 times in the year


Chapter-5 [233]

of 2005-07 respectively. During the year of 2007-08, it decreased up to 17.66 times. It

got fluctuated the ratios were 9.14, 7.48, 10.44, 11.17 and 9.91 times during the year of

2008 -13 respectively. It has been also shown in the Graph No-5.7.5.1.




period.

10. Tata Motors Limited:

Table No-5.7.5.1 shows that the Debtors Turnover Ratio of the Tata Motors

Limited during the year from 2003-2004 to 2012-13, the highest ratio was 36.28 times in

the year 2006-07 and the lowest ratio was 16.52 times in the year 2003-04.


times in the year 2004-05, further it has been increased up to 26.79 times in the year of


ratios were 29.84, 21.53, 19.47, 18.85, 20.45 and 19.78 times during the year of 2007-13





period.

ANOVA Test of Debtors Turnover Ratio :

Hypothesis:


There is no significant difference in Debtors Turnover Ratio of



There is significant difference in Debtors Turnover Ratio of




Chapter-5 [234]

Source of

Variation

Sum of

Square

Degrees of

Freedom

Mean


Between

Groups 20534.06 9 2281.562 1.426641 0.18862 1.985595

Within

Groups 143932.9 90 1599.255

Total 164467 99




Fcal < Ftab

1.43 < 1.98

Fcal < Ftab




Hypothesis is rejected. So, it indicates that there is no significant difference in Debtors

Turnover Ratio of selected automobile industry under study for the period.

Table No-5.7.5.2

DEBTORS TURNOVER RATIO

ONE WAY ANOVA TEST


Chapter-5 [235]

5.7.6 AVERAGE COLLECTION PERIOD:

Meaning :

This Ratio establishes a relationship between Average Debtors, Net Credit

sales and no of days in the year.

Objective :

The objective of computing this ratio is to determine the period shows an

average period which the credit sales.

Components :

1. Average Debtors which refer to Trade Debtors

2. Net Credit Sales which refers gross credit sales- sales return

3. No of Days =365 days


This ratio is computed by dividing the Average debtors by the net credit

sales multiplied by 365 days. This ratio is usually express as days. In the form of a

formula, this ratio may be express as follows:

This ratio indicates an average period for which the credit sales remain

outstanding or the average credit period actually enjoyed by the debtors. It

measures the quality of debtors it indicates the rapidity or slowness with which

the money is collected form debtors.

To judge whether the ratio is satisfactory or not, it should be compare with

its own past ratio or with the ratio of similar firm in the same industry or with the

industry average.

The Average Collection period of selected companies of Automobile



Chapter-5 [236]

TABLE NO-5.7.6.1 AVERAGE COLLECTION PERIOD

YEAR COMPANY NAME


2003-2004 6 7 33 14 12 53 27 41 49 22

2004-2005 3 6 46 9 10 23 21 42 37 15

2005-2006 5 6 50 8 12 38 19 47 30 14

2006-2007 9 8 33 32 16 25 17 51 24 10

2007-2008 11 11 15 23 17 22 14 54 21 12

2008-2009 7 13 13 14 14 18 14 55 40 17

2009-2010 3 17 9 9 9 9 11 42 49 19

2010-2011 2 14 7 5 7 8 8 37 35 19

2011-2012 3 12 5 1 7 14 9 29 33 18

2012-2013 7 13 5 2 11 10 10 28 37 18

Average 5.67 10.72 21.56 11.57 11.44 21.89 15.01 42.43 35.38 16.45

S.D. 2.92 3.94 17.38 9.49 3.43 14.16 6.14 9.27 9.31 3.65

C.V. 51.44 36.76 80.62 82.02 30.00 64.68 40.91 21.85 26.31 22.22

Min 2 6 5 1 7 8 8 28 21 10

Max 11 17 50 32 17 53 27 55 49 22


GRAPH NO-5.7.6.1 AVERAGE COLLECTION PERIOD


fluctuating trends of the Average Collection period of selected Automobile industry in

India from 2003-2004 to 2012-2013.


Chapter-5 [237]


Table No-5.7.6.1 shows that the Average Collection period of the Hero MotoCorp

Ltd during the year from 2003-2004 to 2012-2013, the highest days was 11 days in the

year of 2007-08 and lowest days was 2 days in the year of 2010-11.

In the year 2003-04 the days was 6 days which has been decreased 3 days in year

2004-05, further it has been increased up to 5 and 9 days in the year of 2005-07

respectively. During the year of 2007-08, it increased up to 11 days. It got fluctuated the

days have been 7, 3, 2, 3 and 7 days during the year of 2008-2013 respectively. It has


So, The Average of Average Collection period is 5.67, The Standard Deviation is


because the average of Average Collection period shows satisfactory Days of during the

study period.


Table No-5.7.6.1 shows that the Average Collection period of the TVS Motor

Company during the year from 2003-2004 to 2012-2013, the highest days was 17 days in

the year 2009-10 and the lowest days was 6 days in the year 2004-05 and 2005-06.

In the year 2003-04 the days was 7 days which has been decreased 6 and 6 days

in 2004-05 and 2005-06 respectively , further it has been increased up to 8 days in the

year of 2006-07. During the year of 2009-10, it increased up to 17 days respectively. It

got fluctuated the days have been 11, 13, 14, 12 and 13 days during the year of 2007-09


So, The Average of Average Collection period is 10.72, The Standard Deviation



study period.


Table No-5.7.6.1shows that the Average Collection period of the Scooters India

Limited during the year from 2003-2004 to 2012-2013, the highest days was 50 days in


Chapter-5 [238]

the year 2005-06 and the lowest days was 5 days in the year 2011-12 and 2012-13.

In the year 2003-04 the days was 33 days which has been increased 46 days in

2004-05, further it has been increased up to 50 days in the year of 2005-06. During the

year of 2011-13, it increased up to 5 days respectively. It got fluctuated the days have

been 33, 15, 13, 9 and 7 days during the year of 2006-11 respectively. It has been also

shown in the Graph No-5.7.6.1.


is 17.38 and The Co-efficient variance is 80.62% days which shows solvency of this

company because the average of Average Collection period shows satisfactory Days of

during the study period.

4. LML :

Table No-5.7.6.1 shows that the Average Collection period of the LML during the

year from 2003-2004 to 2012-2013, the highest days was 32 days in the year 2006-07

and the lowest days was 1 days in the year 2011-12.

In the year 2003-04 the days was 14 days which has been decreased 9 days in the

year 2004-05, further it has been decreased up to 8 days in the year of 2005-06. During

the year of 2006-07, it increased up to 32 days. It got fluctuated and the days have been

23, 14, 9, 5 and 2 days during the year of 2007-11 and 2012-13 respectively. It has been

also shown in the Graph No-5.7.6.1.




study period.


Table No-5.7.6.1 shows that the Average Collection period of the Bajaj Auto Ltd

during the year from 2003-2004 to 2012-2013, the highest days was 17 days in the year

2007-08 and the lowest days was 7 days in the year 2010-11 and 2011-12.

In the year 2003-04 the days was 12 days which has been increased 10 days in

the year 2004-05, further it has been increased up to 12 ,16 and 17 days in the year of


Chapter-5 [239]

2005-08 respectively. During the year of 2010-12, it decreased up to 7 and 7 days

respectively. It got fluctuated the days have been 14, 9 and 11 days during the year of


So, The Average of Average Collection period 11.44, The Standard Deviation is



study period.


Table No-5.7.6.1 shows that the Average Collection period of the Hindustan

Motors Limited during the year from 2003-2004 to 2012-2013, the highest days was 53

days in the year 2003-04 and the lowest days was 8 days in the year 2010-11.


year 2004-05, further it has been increased up to 38 days in the year 2005-06. During the

year of 2010-11, it decreased up to 8 days. It got fluctuated the days have been 25, 22, 18,

9, 14 and 10 days during the year of 2006-10 and 2011-13 respectively. It has been also

shown in the Graph No-5.7.6.1.




study period.


Table No-5.7.6.1shows that the Average Collection period of the Maruti Suzuki

India Limited during the year from 2003-2004 to 2012-2013, the highest days was 27



year 2004-05, further it has been increased up to 19, 17, 14 and 14 days in the year 2005-

09. During the year of 2010-11, it decreased up to 8 days. It got fluctuated the days have

been 11, 9 and 10 days during the year of 2009-10 and 2011-13 respectively. It has been

also shown in the Graph No-5.7.6.1.


Chapter-5 [240]




study period.


Table No-5.7.6.1 shows that the Average Collection period of the Mahindra and

Mahindra Limited during the year from 2003-2004 to 2012-2013, the highest days was 55


In the year 2003-04 the days was 41 days which has been increased 42 days in the

year 2004-05, further it has been increased up to 47, 51 and 54 days in the year 2005-08

respectively. During the year of 2012-13, it decreased up to 28 days. It got fluctuated the

days have been 55, 42, 37 and 29 days during the year of 2008-12 respectively. It has





study period.

9. Ashok Leyland:

Table No-5.7.6.1 shows that the Average Collection period of the Ashok Leyland

during the year from 2003-2004 to 2012-2013, the highest days was 49 days in the year

2009-10 and the lowest days was 21 days in the year 2007-08.


year 2004-05, further it has been decreased up to 30, 24 and 21 days in the year of 2005-

08 respectively. During the year of 2009-10, it increased up to 49 days. It got fluctuated

the days were 40, 35, 33 and 37 days during the year of 2008-09 and 2010-13



Chapter-5 [241]




study period.


Table No-5.7.6.1 shows that the Average Collection period of the Tata Motors

Limited during the year from 2003-2004 to 2012-13, the highest days was 22 days in the

year 2003-04 and the lowest days was 10 days in the year 2006-07.

In the year 2003-04 the days was 22 days respectively which has been decreased

15 days in the year 2004-05, further it has been decreased up to 14 days in the year of

2005-06. During the year of 2006-07, it decreased up to 10 days. It got fluctuated the

days were 12, 17, 19, 19, 18 and 18 days during the year of 2007-13 respectively. It has





study period.

ANOVA TEST OF AVERAGE COLLECTION PERIOD :

Hypothesis:


There is no any significant difference in Average Collection period

of automobile industry under study.


There is significant difference in Average Collection period of




Chapter-5 [242]

Source of

Variation

Sum of

Square

Degrees of

Freedom

Mean


Between

Groups 1697.887 9 188.6542 0.938251 0.496377 1.985595

Within

Groups 18096.3 90 201.07

Total 19794.19 99




Fcal < Ftab

0.94 < 1.98

Fcal < Ftab




Hypothesis is rejected. So, it indicates that there is no significant difference in Average

Collection Period of selected automobile industry under study for the period.

TABLE NO-5.7.6.2

AVERAGE COLLECTION PERIOD

ONE WAY ANOVA TEST


Chapter-5 [243]

5.7.7 WORKING CAPITAL TURNOVER RATIO:

Meaning :

This Ratio establishes a relationship between Net sales and Working

capital.

Objective :


which the working capital utilized.

Components :

1. Net Sales = Gross sales - Sales return

2. Working capital = Current Assets – Current liabilities


This ratio is computed by dividing the net sales by the working capital.

This ratio is usually express as a „x‟ number of times. In the form of a formula,

this ratio may be express as follows:

This ratio indicates the firm‟s ability to generate sales per rupee of

working capital. In generally is higher ratio the more efficient the management

and utilization of working capital and vice versa.

To judge whether the ratio is satisfactory or not, it should be compare with

its own past ratio or with the ratio of similar firm in the same industry or with the

industry average.

The working Capital turnover ratio of selected companies of Automobile



Chapter-5 [244]

TABLE NO-5.7.7.1 WORKING CAPITAL TURNOVER RATIO

YEAR COMPANY NAME


2003-2004 -11.78 187.76 2.04 -16.11 3.44 9.52 11.34 2.23 4.42 -24.22

2004-2005 -16.08 48.37 1.93 -5.18 3.18 45.45 6.27 1.90 3.55 10.22

2005-2006 -34.62 24.66 1.77 -2.29 4.59 -34.49 5.42 1.66 4.91 5.40

2006-2007 -76.91 15.71 2.43 -0.35 4.01 15.45 6.19 1.70 7.00 6.55

2007-2008 -26.62 11.97 2.92 -0.56 14.28 39.37 28.14 1.92 8.37 16.62

2008-2009 -24.04 10.79 5.05 -0.77 7.59 -48.47 8.35 2.09 4.72 32.32

2009-2010 -17.08 14.65 5.32 -1.89 -26.01 -12.58 35.40 2.10 4.75 -11.29

2010-2011 -6.12 30.97 7.71 -3.79 147.24 -14.60 17.18 3.75 13.26 223.63

2011-2012 -22.91 51.69 11.45 -0.90 12.67 -15.52 23.37 4.20 19.51 -293.74

2012-2013 -464.67 102.23 4.53 -0.60 20.44 -14.90 122.56 4.05 14.17 -18.08

Average -70.08 49.88 4.51 -3.24 19.14 -3.08 26.42 2.56 8.47 -5.26

S.D. 140.02 55.90 3.10 4.79 46.66 30.23 35.33 1.01 5.38 124.08

C.V. -199.79 112.07 68.64 -147.66 243.72 -981.88 133.69 39.58 63.58 -2359.80

Min -464.67 10.79 1.77 -16.11 -26.01 -48.47 5.42 1.66 3.55 -293.74

Max -6.12 187.76 11.45 -0.35 147.24 45.45 122.56 4.20 19.51 223.63


GRAPH NO-5.7.7.1 WORKING CAPITAL TURNOVER RATIO


fluctuating trends of the Working Capital Turnover Ratio of selected Automobile

industry in India from 2003-2004 to 2012-2013.


Chapter-5 [245]


Table No-5.7.7.1 shows that the Working Capital Turnover Ratio of the Hero

MotoCorp Ltd during the year from 2003-2004 to 2012-2013, the highest ratio was -6.12

times in the year of 2010-11 and lowest ratio was -464.67 times in the year of 2012-13.

In the year 2003-04 the ratio was -11.78 times which has been decreased -16.08

times in the year 2004-05, further it has been decreased up to -34.62 and -76.91 times in

the year of 2005-07 respectively. During the year of 2010-11, it increased up to -6.12

times. It got fluctuated the ratios have been -26.62, -24.04, -17.08, -22.91 and -464.67

times during the year of 2007-10 and2011-13 respectively. It has been also shown in the

Graph No-5.7.7.1.

So, The Average Working Capital Turnover Ratio is -70.08 times , The Standard


this company because the average Working Capital Turnover Ratio shows dissatisfactory



Table No-5.7.7.1 shows that the Working Capital Turnover Ratio of the TVS

Motor Company during the year from 2003-2004 to 2012-2013, the highest ratio was


2008-09.


times in the year 2004-05, further it has been decreased up to 24.66, 15.71 and 11.97

times in the year of 2005-08 respectively. During the year of 2008-09, it decreased up to

10.79 times. It got fluctuated the ratios have been 14.65, 30.97, 51.69 and 102.23 times

during the year of 2009-13 respectively. It has been also shown in the Graph No-5.7.7.1.

So, The Average Working Capital Turnover Ratio is 49.88 times, The Standard

Deviation is 55.90 and The Co-efficient variance is 112.07% which shows solvency of

this company because the average Working Capital Turnover Ratio shows satisfactory



Chapter-5 [246]

3. Scooters India Limited :

Table No-5.7.7.1 shows that the Working Capital Turnover Ratio of the Scooters

India Limited during the year from 2003-2004 to 2012-2013, the highest ratio was 11.45




During the year of 2011-12, it increased up to 11.45 times. It got fluctuated the ratios

have been 2.43, 2.92, 5.05, 5.32, 7.71 and 4.53 times during the year of 2006-11 and




company because the average Working Capital Turnover Ratio shows satisfactory Ratio

of during the study period.

4. LML:

Table No-5.7.7.1 shows that the Working Capital Turnover Ratio of the LML

during the year from 2003-2004 to 2012-2013, the highest ratio was -0.35 times in the

year 2006-07 and the lowest ratio was -16.11 times in the year 2003-04.

In the year 2003-04 the ratio was -16.11 times which has been increased -5.18

times in the year 2004-05, further it has been increased up to -2.29 times in the year of

2005-06. During the year of 2006-07, it increased up to -0.35 times. It got fluctuated and

the ratios have been -0.56, -0.77, -1.89, -3.79, -0.90 and -0.60 times during the year of

2007--13 respectively. It has been also shown in the Graph No-5.7.7.1.

So, The Average Working Capital Turnover Ratio is -3.24 times, The Standard





Table No-5.7.7.1 shows that the Working Capital Turnover Ratio of the Bajaj

Auto Ltd during the year from 2003-2004 to 2012-2013, the highest ratio was 147.24


Chapter-5 [247]




During the year of 2010-11 it increased up to 147.24 times. It got fluctuated the ratios

have been 4.01, 14.28, 7.59, -26.01, 12.67 and 20.44 times during the year of 2006-10







Table No-5.7.7.1 shows that the Working Capital Turnover Ratio of the

Hindustan Motors Ltd during the year from 2003-2004 to 2012-2013, the highest ratio


2008-09.


in the year 2004-05, further it has been decreased up to -34.49 times during the year of

2005-06. During the year of 2008-09, it decreased up to 48.47 times. It got fluctuated the

ratios have been 15.45, 39.37, -12.58, -14.60, -15.52 and -14.90 times during the year of







Table No-5.7.7.1 shows that the Working Capital Turnover Ratio of the Maruti

Suzuki India Ltd during the year from 2003-2004 to 2012-2013, the highest ratio was


2005-06.


Chapter-5 [248]


times in the year 2004-05, further it has been decreased up to 5.42 times during the year

of 2005-06. During the year of 2012-13, it increased up to 122.56 times. It got fluctuated

the ratios have been 6.19, 28.14, 8.35, 35.40, 17.18 and 23.37 times during the year of







Table No-5.7.7.1 shows that the Working Capital Turnover Ratio of the Mahindra

and Mahindra Limited during the year from 2003-2004 to 2012-2013, the highest ratio


2005-06.





and2012-13respectively. It has been also shown in the Graph No-5.7.7.1.





9. Ashok Leyland :

Table No-5.7.7.1 shows that the Working Capital Turnover Ratio of the Ashok

Leyland during the year from 2003-2004 to 2012-2013, the highest ratio was 19.51 times



in the year 2004-05, further it has been increased up to 4.91 , 7.00 and 8.37 times in the


Chapter-5 [249]


It got fluctuated the ratios were 4.72, 4.75, 13.26 and 14.17 times during the year of







Table No-5.7.7.1 shows that the Working Capital Turnover Ratio of the Tata

Motors Limited during the year from 2003-2004 to 2012-13, the highest ratio was 223.63


In the year 2003-04 the ratio was -24.22 times which has been increased 10.22

times in the year 2004-05, further it has been decreased up to 5.40 times in the year of


ratios were 6.55, 16.62, 32.32, -11.29, -293.74 and -18.08 times during the year of






ANOVA TEST OF WORKING CAPITAL TURNOVER RATIO :

Hypothesis:


There is no significant difference in Working Capital Turnover



There is significant difference in Working Capital Turnover Ratio

of automobile industry under study.



Chapter-5 [250]

Source of

Variation

Sum of

Square

Degrees of

Freedom

Mean


Between

Groups 31293.62 9 3477.069 0.71659 0.692403 1.985595

Within

Groups 436701.6 90 4852.24

Total 467995.2 99




Fcal < Ftab

0.72 < 1.98

Fcal < Ftab




Hypothesis is rejected. So, it indicates that there is no significant difference in Average

Collection Period of selected automobile industry under study for the period.

TABLE NO-5.7.7.2

WORKING CAPITAL TURNOVER RATIO

ONE WAY ANOVA TEST


Chapter-5 [251]

5.8 CONCLUSION:

Chapter titled “Analysis and Evaluation of Working Capital” describe that its one

of the important measurement of the financial position of the business organization. The

concept and nature of working capital or current assets denotes that Investment in current

assets is turned over many times in a year. Investment in current assets such as

inventories and book debts is realized during the firms operating cycle which is usually

less than year.

Therefore measurement liquidity has its own important. Importance of liquidity

describes that it‟s lifeblood and controlling nerve center of the business. Without

circulation of blood no one can live, just like without circulation of liquidity business

can‟t maintain. The performance of liquidity can be judged by investment in working

capital, short-term creditors, and efficiency in working capital. In the present study there

were six types of ratios was calculated i.e. current ratio, quick ratio, and inventory

turnover ratio working capital turnover ratio, debtor turnover ratio, and average collection

period. Thus above analysis describe that the need for liquidity to rub day-to-day business

activities can‟t be over emphasized.


Chapter-5 [252]

5.9 REFERENCES:

1. Backer C. John And Malatt D.W., Introduction to Corporate Finance, McGraw

Hill Book co., New York, 1936, P.92 4.

2. Brown J.L and Howardl. R., Principles and Practices of Management

Accountancy, MacDonald and Evans ltd., London, 1975 P.70.

3. Dr. P.C. Tulsian, Financial Management, S. Chand & Co. Ltd, New Delhi, 2010,

P-13.54.

4. E.W. Walker, Essentials of financial management Prentice Hall of India Pvt. Ltd,

New Delhi.

5. Gower Press, Financial Management Hand Book, Gower Press, Essex, 1961,P.61.

6. Gupta R.L.& M. Radhaswami, Financial Statement Analysis. Sultan

Chand&Sons. Delhi,1980, P.40.

7. Guthaman H.G. , Corporation Finance Principles and Problems, Chaitanya

Publishing House, Allah bad, eighth Edition, P.146.

8. Hampton J.J.,Financial decision-making: Concepts, Problems, and Cases, prentice

Hall of India pvt. New Delhi, 1977.

9. Husband And Dockeray, Modern Corporation Finance, Richard D. 1957, P.554.

10. Jain Sashi A “Working Capital Management of Pharmaceutical Industry in India”

A thesis submitted for the degree of Ph.D., Dept. of commerce and business

administration” Saurashtra university, Rajkot,1990, P.12.

11. James C. Van Horne “Financial Management and Policy” prentice Hall of India,

New Delhi, 197

12. K. P. Singh, A. K. Sinha And S.C. Singh “Management of Working Capital in

India”, janki prakashan, ashok Rajpath, Patna, 1986, P.12.

13. K. Rajeshwar Rao, Working Capital Planning and Control in Public Enterprises in

India, Ajanta Publications (India), Jawaharlal Nagar, Delhi-110007, 1985, P.4.

14. Kuchhal S.C., Financial Management –an Analytical and Conceptual Approach,

Chaitanya Publishing House, Allahbad, 1982, p.155.


Chapter-5 [253]

15. Lawrence J. Gitman, Principle of Managerial Finance, Harper and Row

Publishers, New York, 1976.

16. Man Mohan and S.N Goyal, Principles Management Accounting, sahitya

Bhavan, Agra, 1985, P-440-450.

17. N. M. Khandelwal, Working Capital Management in Small Scale Industries,

Ashish Publishing House, Punjabi Baug, New Delhi 1985P.No.5.

18. P.V. Kulkarni and B. G. Satyaprasad, Financial Management, Himalaya

Publishing House, Mumbai, 2008, P-350-360.

19. Park Colin and John E.Gladson, Working Capital, Mac Millan Company, New

York, 1963, P.2.

20. R.D.Kennedy And S.Y.Mcmuller, Financial Statements-Forms Analysis and

Interpretation, Richard D. Irwin inc. Illinois, 1985, P.265.

21. Rama Moorthy, Working Capital Management, madras: institute of Financial

management research, 1976, P.227.

22. S. P. Vijayaserap and K. Rajeshwar Rao, Working Capital Investment and

Financing in Public Enterprises, The management account, Calcutta, May 1998.

23. WALKER E.W., Essential of Financial Management, Eastern economy edition,

Prentice Hall of India Pvt. Ltd, New Delhi, 1976, P.59.

24. Weston and Brigham, Managerial Finance‟, Holt, Rinehart, Winston, New York,

1969, P. 28.

25. Hero MotoCorp Ltd Annual Reports from 2003-2004 to 2012-2013.

26. TVS Motor Company Annual Reports from 2003-2004 to 2012-2013.

27. Scooters India Limited Annual Reports from 2003-2004 to 2012-2013.

28. LML Annual Reports from 2003-2004 to 2012-2013.

29. Bajaj Auto Ltd Annual Reports from 2003-2004 to 2012-2013.

30. Hindustan Motors Limited Annual Reports from 2003-2004 to 2012-2013.

31. Maruti Suzuki India Limited Annual Reports from 2003-2004 to 2012-2013.

32. Mahindra & Mahindra Limited Annual Reports from 2003-2004 to 2012-2013.

33. Ashok Leyland Annual Reports from 2003-2004 to 2012-2013.

34. Tata Motors Limited Annual Reports from 2003-2004 to 2012-2013.

chapter-5 analysis and evaluation of working...

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